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Household Debt and Social Interactions

48 Pages Posted: 2 Mar 2012 Last revised: 9 Dec 2013

Dimitris Georgarakos

European Central Bank (ECB) - Directorate General Research; University of Leicester; Center for Financial Studies (CFS)

Michael Haliassos

Goethe University Frankfurt - House of Finance; Goethe University Frankfurt - Faculty of Economics and Business Administration; CEPR; NETSPAR

Giacomo Pasini

Ca' Foscari University Venice; Netspar

Multiple version iconThere are 5 versions of this paper

Date Written: December 6, 2013

Abstract

Can concern with relative standing, which has been shown to influence consumption and labor supply, also increase borrowing and the likelihood of financial distress? We find that perceived peer income contributes to debt and the likelihood of financial distress among those who consider themselves poorer than their peers. We use unique responses describing perceived peer characteristics from a Dutch population-wide survey to handle major challenges of uncovering social interaction effects on borrowing: (i) debts, unlike conspicuous consumption, are often hidden from peers, and (ii) location is missing in anonymized data. We employ several approaches to uncover exogenous, rather than correlated, effects.

Keywords: Household finance, household debt, social interactions, mortgages, consumer credit, informal loans

JEL Classification: G11, E21

Suggested Citation

Georgarakos, Dimitris and Haliassos, Michael and Pasini, Giacomo, Household Debt and Social Interactions (December 6, 2013). Available at SSRN: https://ssrn.com/abstract=2014222 or http://dx.doi.org/10.2139/ssrn.2014222

Dimitris Georgarakos

European Central Bank (ECB) - Directorate General Research

Neue Mainzer Str. 66-68
Frankfurt am Main, D-60311
Germany

University of Leicester

Department of Economics
Leicester LE1 7RH, Leicestershire LE1 7RH
United Kingdom

Center for Financial Studies (CFS)

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

Michael Haliassos (Contact Author)

Goethe University Frankfurt - House of Finance

Theodor-W.-Adorno-Platz 3
PF H32
Frankfurt am Main, 60323
Germany

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
PF H32
Frankfurt am Main, D-60323
Germany

CEPR

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

NETSPAR ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Giacomo Pasini

Ca' Foscari University Venice ( email )

Cannaregio 873
Venice, 30121
Italy
+39 041 234 9171 (Phone)
+39 041 2349176 (Fax)

HOME PAGE: http://venus.unive.it/pasinigi

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://www.netspar.nl/people/researchfellows/pasini/

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